An auto repair shop plans to sell a new brand of car battery with a 4-year warra

Question

An auto repair shop plans to sell a new brand of car battery with a 4-year warranty. Given: If the battery fails within 4 years, the shop will refund a pro-rata share of the purchase price at the moment of failure. The purchase price of the battery is equal to the sum of the manufacturing cost, loading for profit, and the actuarial present value of the warranty. The manufacturing cost of the battery is 50, and profit is equal to 10% of the manufacturing cost. The force of failure of the battery is u(t) = 1/(10-t), 0

Explanation / Answer

Answer: I find the APV of the warranty, I come up with a result of .18755P. Then I solve the equation

Profit=50*10%=$5

P = .18755P + 50 + 5

P= 67.69

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